Small Business Confidence Drops as Pessimism Spreads

U.S. small business confidence dropped in March for the first time in six months amid widespread pessimism, adding to evidence suggesting that economic growth slowed in the first quarter.

The National Federation of Independent Business said on Tuesday its optimism index dropped to 92.5 last month from 94.3 in February.

The survey was the latest to imply growth last quarter decelerated from the fourth-quarter's 3 percent annual pace.

Job creation slowed abruptly in March, with employers adding 120,00 positions to their payrolls — less than half the average monthly increase in the prior three months.

The tepid employment gains brought the labor market more in line with signs of a broader slowdown in the overall economy.

In the NFIB survey, nine of the 10 components fell last month, and while new jobs per firm increased by the most in a year, fewer business owners planned to hire new workers.

There was also a decline in the share of owners experiencing difficulties in filling positions.

Owners were pessimistic about sales, profits and their chances of accessing credit, the survey found. They were glum about prospects for business conditions in the next six months.

"It looks like a replay of 2011, a few months look good early on, then it fades," said William Dunkelberg, NFIB chief economist. "GDP growth in the first quarter is not going to live up to fourth-quarter GDP."

Rising prices also are weighing on sentiment among small businesses owners and last month — 9 percent of the 757 respondents said inflation was their top business problem.

"Reports of increases in average selling prices are rising and 21 percent of the owners plan to raise their selling prices in the coming months," said Dunkelberg.

There was a modest increase in the number of business owners reporting that their inventories were low, but there was little sign that they were in hurry to add stocks.

"Overall, it appears that small business owners have reduced inventories to acceptable levels given the outlook for sales growth," said Dunkelberg.

"Without improved sales, there is little motivation to order new inventory."